China buys friends and influences nations

Published : 2014-05-06 20:32
Updated : 2014-05-06 20:32

If you can’t beat them, outspend them. That seems to be the thinking behind a huge new infrastructure investment fund being promoted by China as an alternative to established international lending agencies. It’s a terrible rationale for starting a bank ― and a good reason to reform the current international system, which remains dominated by Americans, Europeans and Japanese.

Japan, in particular, seems to be the target of China’s proposed Asian Infrastructure Investment Bank. Tensions between the two countries are running dangerously high over a set of disputed islands that Japan calls the Senkakus and China calls Diaoyu. In this blood feud, Chinese leaders are looking for any leverage they can find to undermine Tokyo’s influence across the wider region. Until now, Asian nations needing help building up their infrastructure have turned to the Japanese either directly or through the Manila-based Asian Development Bank, which is traditionally run by a Japanese official, much like the World Bank tends to be run by an American and the International Monetary Fund by a European.

With an anticipated $50 billion kitty, Beijing’s new fund could begin to put the ADB out of business as China effectively bribes leaders from Dili to Ulaanbaatar. Indonesia needs a swanky new port? Here’s $3 billion. Manila’s airport needs a facelift? No problem. Thailand’s power grid is overloaded? Send us the bill.

It doesn’t take a wild imagination to see this largess growing and eventually eclipsing the World Bank, too. Beijing may even look beyond roads and bridges to address balance-of-payments needs. If you’re Vietnam, why go to the IMF and submit to the policy changes and increased transparency its officials demand in exchange for aid? All China asks for is friendship and support against rivals ― whether nationalists in Japan or “splittists” in Taiwan and Tibet. If Myanmar or Mongolia suddenly suffered a run on their currencies, Beijing wouldn’t send a financial SWAT team with spreadsheets and conditions ― just a check.

For Asia’s developing nations, this bargain might look attractive in the short run. But Africa’s experience with Chinese financial diplomacy offers a cautionary tale. Over the last decade, China Development Bank, often called the mainland’s “Superbank,” became the core of China’s efforts to procure both energy and influence in Africa. Trouble is, Beijing’s see-no-evil-hear-no-evil approach has propped up rogue governments in Sudan, Zimbabwe and elsewhere. It’s deadened incentives to build competitive economies that rely on diverse sources of growth. And the dynamic has ushered in a new colonialism, whereby China grabs raw materials, while enriching corrupt governments rather than ordinary citizens. A similar phenomenon can be seen in Latin America, including in Brazil.

For Beijing, the ADB represents the vanguard of a Bretton Woods order it views as a relic of the past and a tool of U.S. hegemony. Sidelining the Japanese-led bank is the first step toward replacing the liberal “Washington Consensus” and carving out a more dominant role for China in the global capitalist order. The risk is that in its drive to reduce U.S. and Japanese influence, China will foster a new moral hazard in a region that needs better governance and more transparency, not less.

I’m not saying the global status quo is perfect. Far from it, actually. Japan should indeed allow China to play a bigger role in the ADB, just as Washington must permit developing upstarts a bigger say in the Bretton Woods organizations and the Group of Seven. The World Bank itself thinks China’s economy could soon be bigger than the U.S.’s. There’s no excuse for blocking Beijing from playing more of a leadership role within existing global institutions.

The alternative will be to weaken those very institutions. Right now, if Myanmar wants a new network of roads, the government must work to curtail corruption. If the Philippines needs loans to increase electricity output, authorities must protect local ecosystems. If Bangladesh requires a new complex of factories, it has to ensure children aren’t working in them.

By contrast, the only strings attached to China’s money involve its geopolitical agenda: cheap fossil fuels, isolating Taiwan, winning control of disputed territory, supporting Beijing’s priorities at the United Nations and elsewhere. With $4 trillion of currency reserves, China can buy lots of friends. Better to give Beijing a say in current institutions than to risk having China’s largess undermine them completely.